Budget myths and mischief

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During budget time, many myths and misconceptions regarding the federal deficit are reported. This week was no exception.

President Bush's $2.4 trillion budget for fiscal 2005, which begins in October, forecasts a deficit of $521 billion -- a scarier-sounding number than it is.

Economic analysts measure deficits and budgets in terms of the overall size of the economy, which is nearly $11 trillion a year. So we are talking about a budget deficit that is about 5 percent of the gross domestic product -- a level of additional short-term borrowing our economy can easily absorb. In fact, the deficit is relatively small as a share of the GDP than it was during recessionary periods, when it spiked upward.

Deficit hawks ascribe all sorts of horrible things to the budget deficit without providing any evidence to back up their claims. Among them:

The deficit will endanger our economy: But the economy is in the midst of very strong growth -- 8.2 percent in the third quarter, 4 percent in the fourth quarter, with forecasts of stronger growth in the months to come.

The deficit-mongers made the same hysterical, sky-is-falling claims during the 1980s. But the economy roared back from the 1981-82 recession, producing 4 percent, 5 percent and 6 percent growth. Ronald Reagan's deficits did not hold back the economy or hurt the government's fiscal position. Mr. Reagan's tax cuts spurred growth and big increases in job creation, which produced higher tax revenues, helped shrink the deficits and eventually led to the budget surpluses of the 1990s.

Higher deficits will push up interest rates, and that will sandbag the economy: But interest rates are low across the board and show no signs of any serious increases in the foreseeable future. There has been and will be some slight increases, but this is due to economic growth, not the deficits.

Higher deficits will heap huge tax burdens on future generations: But, as we saw with the surpluses of the late 1990s, which surprised the experts, the American economy is capable of showing enormous strength when stimulated. And, clearly, Mr. Bush's tax cuts are the chief stimulative force growing this economy.

President Bush's budget forecasts the $521 billion deficit will be cut down to $237 billion in five years, but I see even that forecast may be too conservative. We saw in the late 1990s that a fast-growing economy is capable of very fast tax revenue growth when budget officials predicted the surplus would pay off the public debt faster than a 30-year mortgage.